Based on an analysis of policy contexts in several OECD countries, this article examines the rapidly changing policy environment in Japan exemplified by the 2004 transformation of national universities into "incorporated" entities. The role of universities in the knowledge society is examined in light of the emergence of new research and learning systems, conditioned by forces of both globalisation and regionalisation. This historic legal change affects state-university relations in a number of distinctive ways. It is generally assumed that universities will find themselves in a more competitive environment accompanied by cuts in public funding and that there will, therefore, be a growing need to find external sources of funding as well as more efficient and responsive management approaches. The Japanese Government is further opening the higher education system to society and industry, which has resulted in new forms of competition and collaboration among local and global strategic partnerships. The impact of these new relationships can be perceived in four principal dimensions: economy, human resource, governance and community. Based on the conceptual notion of "constructed advantage", this paper highlights spatial knowledge networking capabilities between institutions/agents at local, national and global levels. Universities are formulating new strategies in networking knowledge, whilst future state policy and evaluation mechanisms warrant close investigation.